White House Chief of Staff Rahm Emanuel famously said crises shouldn’t be wasted. Lucky for U.S. financial markets, the 80s savings and loan debacle wasn’t. Reforms passed in response meant U.S. regulators were better prepared than their European rivals to process the current crop of bank failures.
The blog prophet of euro zone doom (Thomas, NYT)
Hoenig wants a rate increase (Kelleher/Gillam, Reuters) He won’t get it. The Fed has trapped itself. The only way to keep the economy “growing,” is to pump ever more copious amounts of credit into it. If we’re not willing to put up with any recession whatsoever in order to pay-down/write-off debt, well, then, eventually we become Greece. Even central banks that print the currency in which their debt is payable can’t defy gravity forever. The Japanese have tried for the better part of a generation….hasn’t worked so well….
Quote of the Day: Absolving Moody’s for failing to see the housing bubble, Warren Buffett employed the “who-could’ve-known” defense when he told the Financial Crisis Inquiry Commission today that “rising prices are a narcotic” that corrupt the critical thinking of rational people. To that Chairman Phil Angelides responded that rising prices may be “a narcotic, but don’t we expect ratings agencies to avoid it? You don’t want [the credit] police trading crack.”
By Rolfe Winkler
Pop impresario Simon Fuller is ready for an encore. He wants his hit TV show American Idol back. This time it’s shaping up to be a duet, as Fuller has another deep pocket to join his own. The empire is bigger too, with image rights to Elvis Presley and Muhammad Ali added to the mix. But Fuller may yet come to regret a return to the same stage.
Fast forward 28 years and the Oracle dispatched lieutenants to Washington to fight sensible derivatives reforms that would have made it more expensive to maintain his $63 billion portfolio of them. Luckily the White House beat back the “Berkshire provision.”
Fed’s next move could be reduced rate on dollar-euro swaps (Hilsenrath, WSJ) The Fed is charging so much that it discourages European central banks from drawing on the swap lines. That’s good. If we’re dealing with a liquidity problem, as opposed to a solvency problem, the idea is to lend freely, but at penalty rates, not market or below-market rates…
Question of the day: Why is there still nearly $3 trillion parked in money market mutual funds? They yield nothing, they aren’t FDIC guaranteed, they CAN break the buck, and they’re less liquid than bank accounts. Thinking back to autumn ’08, when credit markets start to seize up, cold hard cash stuffed in your mattress looks more appealing. You can withdraw cash from a bank account, not so a money market fund. Not that I’m recommending that, it’s just that if you’re not getting any benefit by holding the money market fund, why bother? (401k money may be stuck, but others aren’t…)
Just one small bank shuttered tonight.
–Failed bank: Pinehurst Bank, St. Paul MN
–Acquiring bank: Coulee Bank, La Crosse WI
–Vitals: assets of $61.2 million, deposits of $58.3 million
–Estimated DIF damage: $6.0 million